Consider Clayton Karioka, who serves up "Hazelnut,"
Amaretto," and "Decaf Genuine Guatemala Antigua" coffee
from behind the counter at Bucks County Nut & Coffee Company in
Washington's Union Station, where Hill staff and even the
occasional political celebrity go to eat. ("You can always tell
when someone's here," he says, 'cause the Secret Service
come for coffee.") Karioka enjoys his job, guessing what the
customers are going to order, joking with the cops who walk by, trying
to pick up Spanish from Union Station's janitorial staff. He works
from 6:30 in the morning until 2:00 in the afternoon, five days a week,
and makes $5.50 per hour-$1.25 more than the minimum wage-with a raise
scheduled after he's been with Bucks County a year.

All in all, the pay's not bad for a young, single man-until
the government takes its cut. Karioka doesn't know it, but
he's one of the chief victims of a sly shift in the tax burden
that, despite the Reagan tax cuts of the early eighties and the
Democratic reforms that came later, has left low-income workers paying
as much as 28 percent more in taxes than they did in 1980. It's a
shift that Senator Daniel Patrick Moynihan brought to national attention
with his proposed Social Security tax cut-a dumb plan, but one driven by
a commendable analysis that should send all Democrats who preach
"tax fairness" scurrying to their calculators and tax tables
to come up with a smarter solution.

Karioka seems to have a line on most any subject, from welfare
reform to gender difference in coffee selection, but ask him about his
taxes and he goes blank. "Hold on," he says, and pulls a
crumpled check stub out of a cupboard. Over the course of two weeks, he
made $402, counting overtime but not tips. Of that, the federal
government withheld $40.71, the Social Security Administration $30.77
(on the line marked (FICA"), and the D.C. government $22.18. That
left Karioka with $308.34 to live on. But witness the first miracle of
the federal tax system: Half the Social Security tax vanished from his
wages before he even received his check (50 percent of the 12.4 percent
tax is paid by your boss; in planning what he has to pay his employees,
he adds in his share of the tax as part of the total cost, which means
if the government didn't get that money, you would).

Now, while the progressive income tax was cut at the beginning of
the decade, Social Security taxes were being hiked so that today's
workers would salt away savings against their retirement. But, as
Moynihan pointed out, the government is essentially treating the payroll
tax like any other tax, not saving its revenue to fund pensions but
blowing it on federal projects like John Sununu's skiing holidays.
In other words, the Social Security tax has become an income tax by
another name, with two important differences: We all pay the same rate,
and we pay it on the first to the 53,400th dollar of our incomes, after
which the affluent pay nothing.

Factoring in the employer's share of Social Security shows
that Karioka pays 24 percent of his income to the federal government,
and 29 percent for taxes overall, before he gets back his refund of
excess withholding. (This is the second miracle of federal taxes: Uncle
Sam often withholds more than he should, which means that workers
generously provide their government with interest-free loans-in
Karioka's case, a loan of $323.75-for as long as 16 months, to be
paid back after the workers file. This scam is more familiar to upscale
taxpayers: "As investments go," The Wall Street Journal
recently warned its readers, "tax refunds rank among the biggest
losers.") Once you allow for the refund, Karioka winds up paying 21
percent of his income, excluding sales taxes, to the feds, most of it in
Social Security taxes. Overall, even though their income tax rates went
down, childless workers in Karioka's income group saw their federal
tax burdens rise 10.7 percent in the eighties. Poorer Americans fared
even worse. The tax burdens of the 20 percent of families (those without
children-more on this later) who make less than Karioka rose about 28.5
percent, according to the Congressional Budget Office (CBO). Meanwhile,
Americans in the richest fifth of the population, where Social Security
taxes take less of a bite, watched their tax burdens drop 4.6 percent.

Karioka's federal taxes leave him $8,435.25 annually, before
D.C. takes its chunk, and $7,880.75 afterward (another trick of the
Reagan tax changes was to transfer more of the burden to state tax
codes). That's what Karioka has left to feed, house, clothe, and
improve himself. Unlike the businessmen who jam the halls of the Capitol
to rail against capital gains taxes or the guys in suits who stood
outside the White House last fall holding signs that read, "HONK
IF YOU HATE TAX HIKES," Karioka never really notices what he's
paying. "I don't pay attention to it," he says with a shy
grin. "All I do is just deposit it to my account and keep on going.
. . . No matter what's pulling you down, there are things you can
enjoy." For our purposes, set aside the miracle of human nature and
simply witness the third miracle of withholding: The payments don't
seem real when you don't write a check. Multiply Karioka by about a
hundred million people and imagine the potential for the Democrats if
someone would make those payments seem real and show those workers how
they've been swindled.

As a result of Reagan's bait-and-switch tax cuts, 69 percent
of American families emerged from the eighties paying more in Social
Security taxes than they do in income taxes-which is the main reason
that the poorer 60 percent of families pay more in federal taxes than
they did in 1980. That's the important message Moynihan helped
deliver. Unfortunately, his proposed solution wouldn't have done
much to correct the problem. Moynihan wanted to cut the Social Security
tax for everyone by I percent, an idea that played beautifully in the
media: The "common man's tax cut," U. S. News and World
Report called it, while The Wall Street Journal, more sensitive,
preferred the "working person's tax cut," labels that
invoked sweaty brows, aching shoulders, and Miller Time, without getting
too specific about which workers would benefit most from the change. Ron
Brown, chairman of the Democratic National Committee, which endorsed
Moynihan's proposal, offered the typical, unsatisfying summation:
"Pat Moynihan," he explained to a meeting of the party
faithful, "wants to keep money in the pockets of American working
families." No doubt. But the questions no one asked were: which
families, and how much?

Since Brown is a successful lawyer, his family probably stood to
make the maximum, about $657. That's the average break for families
in the richest fifth of the population, families who cashed in on the
tax cuts of the eighties. By far the largest portion of the total cut
would go to this group. Meanwhile, families in America's poorest
fifth-ones that watched their before-tax incomes fall by 5.5 percent in
the eighties and their after-tax incomes by 7 percent-would pull in a
whopping $73. Karioka would get about two bucks a week. And here's
the kicker: Moynihan's bill calls for the tax to return to its
current rate in 25 years, and then to climb even higher in order to
cover the retirement benefits of those who would benefit from the tax
break today. In sum: Moynihan wanted to soak our children to bribe the
rich to give a small tax break to the poor. Is this the
"fairness" Democrats stand for?

Look at what happens when you set your top target for those who
deserve a break a little lower. The Moynihan plan would have given every
American worker, from the gas pumper to the investment banker, a 1
percent Social Security tax break; the average annual cost to the
treasury over the next six years, using the senator's conservative
figures, would be $27 billion. For less than that, you could give every
taxpayer in the poorest 40 percent of the population, where incomes run
up to an average of $27,400 for a family of four, a 25 percent federal
tax cut. Talk about feeling treated fairly: Karioka would get a reward
from his government of $639. Unsatisfied with less than an electoral
majority? Then how about giving the bottom 40 percent a 15 percent
break, and the middle 20 percent a 7 percent cut? You'd still be
spending less money than Moynihan.

Of course these reforms are expensive propositions. But there are
ways to pay for them that reinforce the notion that those who can derive
the most pleasure from their income should bear the greatest burden of
taxation. (Precisely because, though they complain more, by any
objective standard they should feel less pain: Taking 21 percent away
from Karioka hurts him much more than taking an equal percentage from a
multimillionaire.) One way to offset these tax losses through the Social
Security system would be to treat benefits as ordinary income and tax
them at normal rates, with a provision to avoid double-taxing
workers' original contributions; conservatively extrapolating from
CBO numbers, this would raise up to $75 billion by 1995. Another
solution would be the Democrats' famous surtax on millionaires,
first proposed during the budget battle last fall to bluff George Bush
and now reintroduced by Senator Albert Gore. This was derided in the
press as a purely symbolic gesture, but in fact it would raise $44.3
billion by 1995. The most aggressive solution, recommended by the group
Citizens for Tax Justice: Raise the income tax rates on corporations and
individuals making more than $250,000 to 38 percent, still well below
the "confiscatory" levels that drove Ronald Reagan into the
arms of Barry Goldwater. This one change would raise more than $30
billion per year.

More buck for your bang

There appear to be two main obstacles to the Democrats proposing
this type of reform; you might call them the kids-only approach and the
$80,000 attitude. The latest Democratic tax initiative, put forward by
Gore and Rep. Tom Downey, falls into the kids-only trap. It dispenses
its break in the form of beefed-up credits, based on the number of
children a family has.

Calculations of Americans' tax burdens focus on families with
children, and those numbers tend to drive Democratic tax policy. Like
the Gore proposal, the successful reforms of 1986 and 1990 also aimed at
expanding credits linked to the number of children in a given family.
This is why, though the tax burden has dropped somewhat for poor
Americans with children since 1985, it has continued to rise for those,
like Karioka, who are childless. The kids-only approach certainly makes
sense in principle-families with children deserve extra help. But
Democrats have pursued this type of reform to the exclusion of assisting
the childless, who, among Americans making less than $25,000, outnumber those with children by almost two to one. So far, Democratic tax reform
has left the vast majority of low-income Americans doing an awful lot of
work to take care of their fellow citizens' kids.

In one crucial respect, Gore's proposal is a major improvement
on Moynihan's: Rather than offering virtually the same break to
all, it discriminates among workers, concentrating benefits on poorer
families. But, like the Moynihan plan, it still scatters its benefits
way up the income scale, to families that pull in as much as $75,000 per
year. Why? Because it's got an $80,000 attitude.

That attitude springs from the fact that, these days, the Democrats
have gone a bit soft on the middle class. As Majority Leader Dick
Gephardt put it after the budget negotiations last fall: "We have
begun to redefine the debate from 'to tax or not to tax' to
who pays, and is it fair?' This gives us a shot at reclaiming large
groups of middle-class Americans who haven't been excited about
Democrats for quite some time." The problem is, another term the
Democrats have begun to redefine is "middle class" itself.
When you ask Gephardt to whom he's referring, you get a glimpse
into the mindset behind the Moynihan and Gore tax cuts: "Various
definitions," he says. "It's hard to get great agreement.
But we're certainly talking about people under $80,000. We're
talking about the vast, broad majority of America that we believe to be
the middle class."

Under $80,000. Vast majority, indeed. Only 7.6 million Americans
make more than $53,400 per year. The vast, broad majority are closer to
Clayton Karioka: Of the 133 million wage earners in the U.S., fully 67
million-just over 50 percent-make $15,000 or less. Seventy-one percent
earn $25,000 or less. OK, you're thinking, but Gephardt probably
means family income, not individuals' salaries. Fair enough. A
family of four living in a big city may find it hard to make ends meet
on $80,000. But these people already received tax breaks in the
eighties. Today, society could best relieve their financial worries not
through changes in the tax code but through means like controlling
college tuition and medical costs. And fundamentally, no matter how
aggrieved they feel, such families are statistically not middle class.
In 1990, the richest fifth of the population, for families of four,
began at $76,000. In the statistical middle, people don't make
lawyers' salaries or doctors' salaries-or even
congressmen's salaries. The average for a family of four in the
middle fifth in 1990 was $39,200, half the amount suggested by Gephardt.

Democratic leaders feel they have to stretch the middle class to
accommodate wealthier Americans, because those taxpayers make the
biggest fuss about their burdens. But sounding like Republicans is a
strange way to offer voters an attractive alternative to George Bush.
Bolder leaders would instead carry the tax fairness message to Bucks
County Nut & Coffee, to wake up workers who are being ripped off but
don't know it. They would discover that this is one of those happy
instances in which doing the right thing for the country means doing the
right thing for the majority-that is, doing the right thing politically.
If advocates of tax fairness are serious about helping those workers who
are getting swindled by the Social Security switcheroo-those workers who
most need a boost to improve their skills and move up-they'll stop
playing with the middle class as though it were a Slinky and put the
money not just where the most, but where the most deserving, mouths are.

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